An Analysis of the Efficiency of the Monetary and Fiscal Policies in Iran Economy Using IS – MP – AS Model

Economists are now focused on the importance of monetary and fiscal policies. Such policies are tools for economists and policy-makers to correctly direct the economy and facilitate the growth and development of the country. Accordingly, it is critically important for policy-makers in the area of economy to study the efficiency and the effectiveness of such policies. IS-LM-AS is a popular model for analysing these policies within past decades. However, it is not the best model for analysing these policies regarding the advancement of macroeconomics and more precise models presented by economics. IS-MP-AS (Romer, 2000) is a new model solving some of the ordinary problems of IS-LM-AS at the same time having some superiorities.

Failing to optimally use monetary and financial policies, Iran could have not properly developed despite of plentiful natural and human resources. The analysis of policies and their efficiency and effectiveness is, therefore, highly significant in Iran. This paper studies the application of IS-MP-AS to Iran's economy and looks at monetary and fiscal policies in this framework.

Results show that monetary and fiscal policies are highly efficient and effective in Iran's economy and affect the country's natural income. According to the research findings, Iran's GDP is negatively associated with expectation inflation, budget deficiency to GDP ratio, and coin prices and positively related to oil incomes and exchange rates. This can be explained by these five variables.